MADRID—Around the world, wealth taxes have become a major topic of political debate. Proposals for a supranational wealth tax in the European Union, a billionaire tax in California, and the floating of similar measures in New York, France, and Denmark all reflect a growing conviction that extraordinary concentrations of wealth warrant extraordinary responses.
Yet taxing wealth is hardly a new idea. Such policies have been well tested, and their track record has been disappointing. Among other things, the revenue typically falls short of projections; behavioral responses inevitably erode the tax base; economic costs usually extend beyond the wealthy; and persistent legal challenges add another layer of uncertainty. Wealth inequality may very well be a problem worth addressing, but wealth taxes are not the solution.
Since the 1960s, at least 13 OECD countries have implemented net wealth taxes, and only a handful have kept them in place. Most were abandoned not because of ideological shifts, but because policymakers recognized the consequences. Governments reversed course after discovering that they had unwittingly encouraged capital flight, depressed investment and long-term economic growth, and created high administrative and compliance costs, all while raising relatively little revenue. Today, the few OECD countries that still impose broad net wealth taxes—including Spain, Norway, and Switzerland—collect only modest revenues from them, typically ranging from about 0.2% to just over 1% of GDP.
These outcomes underscore a central tension. Wealth taxes are often politically attractive because they target the ultra-wealthy. Yet, in practice, their tax base is highly mobile and responsive to any changes in policy. As the ultra-wealthy move to avoid the levy, the revenue that policymakers sought to capture slips away. Such taxes can either target a narrow base, which leaves them more susceptible to leakage, or they can raise more revenue by taxing far more people than their political messaging suggests.
See more: Why Wealth Taxes Always Fail
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